Too often I've seen advisors make the same recommendation, and I believe it's a mistake
when it comes to distributing from your IRA, and we're going to show you in this
video what you should consider instead. Hi, I'm Troy Sharpe, CEO of Oak Harvest
Financial Group, Certified Financial Planner Professional, host of The Retirement Income show,
and author of the upcoming book Core Four. I recently had a client come in to see me,
and he brought his wife and he said, Troy, he says the number one thing that I have for a
goal is I want to make sure I don't run out of money. He says the number two thing, I want to
make sure that I pay the least amount of taxes in my retirement. And he said, Troy, number three,
I want to make sure that if something happens to me that my spouse is going to be okay.
I said, well, you came to the right place. Tell me a little bit more about your situation,
so we can get to know each other. So we sat right here in this conference room, and we talked about
his retirement. And he said, Troy, I'm also considering Fidelity and Vanguard. He said,
they've both give me plans, they've both given me options to consider, but I noticed that their
plans and their recommendations for income are identical. They're both telling me to
do 50% stocks and 50% bonds, take about 4% of my portfolio balance per year, and when I asked them
where should I take this 4% from because about half of my money is IRA and about half of it
is non IRA, they both told me to defer my IRAs until age 70 and take from my non IRAs first.
So this client had about 2 million bucks saved up for retirement. I said, You know what, Tom,
that's something that we often see other accumulation phase advisors making as a
recommendation for retirement, and I think it's the absolute wrong advice for the majority of
people based on the analysis that we've completed for various families over many,
many years. Most of the time, deferring your IRAs can be the wrong choice. And with this new tax
environment, where taxes are on sale today, it makes even more sense for you to consider taking
from your IRAs first, then your non IRAs. We went through the rest of that meeting,
Tom and his wife went home, they come back about a week later, we've completed the analysis,
and I'm going to go through a sample with you to show you what that analysis looks like to
hopefully help you understand if you're receiving this advice to defer your IRAs
that you might be doing the wrong thing. So what we call this strategy, and this is
blanket advice that many, many advisors give in this country, because they're accumulation
phase advisors, they don't work strictly in the retirement phase, they don't understand
oftentimes the nuances and the moving parts that go into retirement income planning, so this is
blanket advice and it's championed by many pundits and people who write articles in the Wall Street
Journal and CNN Money and Yahoo Finance, and this advice is just wrong for many of you out
there. But it's called conventional wisdom. Conventional wisdom means defer your IRAs as
long as possible, get as much tax deferred growth in there, defer your social security as long as
possible, and live off your non IRAs first. So when we look at the conventional wisdom,
age 70 Social Security Strategy for this client, his portfolio was expected to last about 31
years ending balance zero. Ending balance of zero means he's going to run out of money.
Cumulative amount of taxes paid $905,000. When we look at various income distribution
strategies, all of these are different income distribution strategies, taking various amounts
from various accounts, but the investments are identical. So many different choices here. The
number one strategy had him converting to Roth IRAs, up to 12% tax bracket. The portfolio lasted
32 years, he has an ending balance estimated at about $229,000, but 412,000 in cumulative taxes
paid versus 905,000 in cumulative taxes. Number one thing he told me, or excuse me,
this was the number two thing. Number one, I didn't want to run out of money.
The distribution strategy, conventional wisdom failed to meet that goal and both
firms were recommending the strategy. The number two goal was to pay the least
amount of taxes possible and not run out of money. Both firms are recommending a strategy estimated
to pay 905,000, whereas a different income distribution and Roth conversion strategy,
$412,000 in taxes. So when I went through this with Tom, he said, but Troy, he said number two
and number three and number four strategies down here, they're paying even less tax. Should I
consider them? And this is where the craftsmanship of being a retirement income planner comes in.
The true magic takes place when we're planning on a year to year basis. We use these tools as a
guide to get us going down the right path, but each year we have to look at your individual
situation, your needs, the markets, the economy, life events, and make changes to your retirement
income plan, and use these different tools to make sure that we're still on track.
But yes, number two strategy here does have him paying less in taxes, but the ending
balance of his accounts are estimated to be about $20,000 less, the total amount of money spent,
of income spent in retirement is identical, but because there's more money left in strategy one,
it has a higher total value, even though we've paid a little bit more in taxes.
So this is just a conversation we have with you and your family, we can embark upon any of these
paths and we can also change course, as time goes on. But the number one point I want to get across
here is the conventional wisdom strategy, and no scenario, should you embark upon that path, is
going to be the most optimal for your retirement. It has more than twice, and in some cases, three
and four times almost the amount of taxes paid, and a lot less value with a zero ending balance.
Now, when we look at where we are as a country, and what potentially taxes could be in the future,
this does not take into consideration any large tax increases in 10 years or 15 years or 20 years.
If you're in the boat that you believe the country spends too much money, that taxes are
going to be higher in the future, a distribution strategy is probably the most important thing
that you need when it comes to retirement income planning. I would argue it's even
more important than your investment allocation strategy, how much you have in stocks, bonds,
mutual funds, etc. It's at least equal to it. So the advice this gentleman was receiving,
he and his family, could have potentially left him with a zero ending balance and
paying two to three times more in taxes by simply following this conventional
wisdom advice. This is a perfect example of conventional wisdom blanket advice, cookie
cutter solutions being recommended to millions of people in retirement and how it's wrong and
could detrimentally impact your retirement. Number one strategy, convert to a Roth IRA
up to the 12% bracket. Number two, consider converting up to the, MAGI here is modified
adjusted gross income of 213,999. So various distribution strategies are going to provide
various outcomes, and every single decision you make in retirement will impact how much income
you can have, how long your money will last, and what your ending balances will be. Every
decision. It's not just about investments. If you enjoyed this video, and you know
somebody who is entering retirement, maybe it's a friend, a family member, a coworker,
maybe somebody who recently retired or has been in retirement for some time, share this video
with them, help them get more connected to their money, because they may be embarking upon this
conventional wisdom path and it may be the wrong thing for them. It could put them in a position to
where they'd run out of money simply by not having a retirement income distribution plan put together
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